On building social capital for Islamic finance

The purpose of this paper is to set forth seven broad recommendations and 15 specific initiatives within a four-dimensional framework for the development of social capital in Islamic finance, particularly the stock market, given its role as the first best means of risk sharing.

The four-dimensional framework comprises dimensions of principle and value, trust-reinforcing regulation, investment opportunity and infrastructure, as well as reputational intermediaries.

A web of multi-pronged initiatives that are mutually reinforcing is proposed considering the multifaceted dimensions of social capital and the various possible transmission channels by which social capital can influence the financial system.

While empirical studies have demonstrated the importance of trust and ethics in financial development, the pressing issue remains how social capital, including trust and ethics, can be developed to achieve a trustworthy, ethical and efficient financial system. This paper attempts to address this concern.

This paper provides a framework for building social capital in Islamic finance.